Prompted by limanalee’s observation: “But most restaurants fail within a couple of years”… in the Restaurant economics - what am I missing? thread:
This observation probably refers to the US, but it’s something that I am also observing in Germany. Most restaurants/bar/pubs go belly up within a year or two. Those that survive that phase usually stay around for decades - centuries, sometimes.
Is this an international constant or are there localities/countries where there isn’t that appalling infant mortality in the restaurant business?
It seems here that they don’t even make it a few years. If they can survive over a two years they have a chance. It appears most of the new ones (not including chains) close within a year if they’re not going to make it.
I’m not sure I’d use the word “fail.” I think trends come and go, and if you establish yourself in a trendy type of place, it will eventually go out of fashion and you’ll have to overhaul your entire premise. At least that’s how it is in the Chicago area. Sure…we have many old, famous establishments in the Chicago area, but martini/cigar bars and steakhouses, and microbreweries seem to be en vogue these days. When that gets tiresome, the next big thing will replace it. The places that tend to actually fail are the lower-end places, around here anyway.
I have heard that “most businesses fail within the first 5 years.” I don’t know just how true this is or is not.
As for restaraunts, there are a few spots in my local town where new ones pop up regularly. The locations are bad (for several reasons in each instance), and my family plays “guess how long before they close” when new ones come in. So far, the one spot, which tuckerfan would recognise used to be Golden Corral has been the easiest – nothing lasts more than a year. It’s just a bad spot. I do think the current restaraunt will last a while longer, though – it’s a Mexican joint with good food and good prices and is run well. Even with the obvious issues of parking/traffic, it will do better than others have there.
I would imagine that overall, food service is going to fail a lot more often than other types of business due to it almost being a niche market – at least where I live. The only places that last around here are: huge chain places that serve blah food but are easily recognised (O’Charley’s, Chili’s and the like) or niche stuff (the local breakfast dive – crappy food, but the old men love to go there and hang out over crappy coffee all day or the Mexican places that still have good Mexican, not the Tex-Mex crap).
We have “cursed locations” around here, too. For some reason, everyone who makes a go of it closes in a year or two. They’re on great corners, so I can’t figure out what they’re doing wrong.
Most restaurants are fininaced via a loan from the bank. Either you make enough profit to cover the morgage–which depends on location, reputation, how well you’ve judged the market needs, location, ability to control costs, convenience, location, supplier cost, sustained enthusiam, location, et cetera–or you don’t, and you default. I’d guess that you’re going to have a good measure of profitability within three to six months; if the tide isn’t starting to swing by then, either you’re doing something seriously wrong (blowing your profits up your nose or washing away your insolvencies with a distilled solvent are common failure modes) or you’ve just picked the wrong location for the type of cuisine you’re offering. After that, it’s just clinging on and hoping it’ll somehow turn around until the suits from the bank come to let you know that you don’t need to show up at work anymore…oh, and they’re taking your home away, too.
Mexico, though, anyplace that makes it, stays forever without change.
In Japan, I think that the problem is that rent is so high that even a successful restaurant will sometimes get kicked out by the land owner just because they’ve figured out that they can make more money renting (at a higher price) to a pachinko parlor or something.
I believe that the main issue for restaurants is that you have to keep them small so that you can have enough small restaurants to cover an area (or else you won’t get the pedestrian, worker traffic for lunch), but this causes three problems:
There’s a lot of competition nearby. So you have to value things competitively.
There’s not so much competition though, that the local working people who patronize your restaurant won’t eventually get bored of the offerings. This means that as soon as you start your restaurant, you’ll be full every day, but a year later everyone will be tired of eating there so often, and your client base drops off dramatically. (Or entirely disappear if a new restaurant comes in.)
You’re more susceptible to change because the client base is small. If one regular customer dies, that’s a large impact to a smaller restaurant, and possibly the end of them.
Or if you don’t do lunch, then you have to support rent based just on the dinner crowd.
So long as people are more interested in getting to a nearby place to eat than getting to a “good” place to eat, restaurants will have difficulty, probably regardless of where they are.
This is pretty much the effect of my #2 item. People flock to new restaurants and ignore old ones. Even if the restaurant is the same kind of food, people will probably already have stopped regulary going there a while earlier. But once it’s a new restaurant, people will all go back to try it since it’s been a while since they ate Italian regularly. Then they start eating Italian regularly again since it’s not the same Chinese food that they’d been doing for the last couple of months. Then they start getting tired of Italian just as the Chinese restaurant goes bankrupt and a new Chinese place comes in…
Seems to me that the restaurants fall into 3 categories (excluding fast-food):
Small, local restaurants without large marketing budgets. Typically “mom & pop” places. These almost universally fail quickly, unless they’re in some kind of location that gives them a unique advantage relative to almost everyone else. The little Chinese joint by my office building is a perfect example. It’s ok, but very low margin, and probably only stays in business because of the lunch crowd from the nearby downtown office buildings, where pedestrian-distance restaurants are limited.
Even more rare are the ones that actually stay in business and grow based on the strength of their food. There’s a burger joint in my town (Frisco, TX) called “Scotty P’s” that seems to be doing rather well, in spite of inconspicuous marketing and promotion, and competition with a Chili’s, a Bennigan’s and a TGI Friday’s within 2 miles. Herrera’s near downtown Dallas is another that seems to do just fine.
Huge regional and national scope chains. Think Macaroni Grill, Chili’s, etc… These usually do fine- they’re a known quantity, and it’s almost a given that their suits have put careful consideration into locating their new restaurant.
Theme/trendy restaurants. We see a lot of these in the Dallas area. They’re usually upscale, and catering to some trend or other (fusion, sushi, steaks, etc…) The better ones seem to stick, but there’s a horrible casualty rate. Usually these are funded/run by a set of investors/chefs/restauranteurs who own a whole portfolio of places, at least one of which is wildly successful.
We have a cursed location in my general neighborhood too. For years one particular restaurant at said location did very well. Ever since the owner died or sold out (I don’t remember which), each succeeding restaurant has failed miserably.
Right now a barbecue joint’s scheduled to open there within the next couple of weeks. I’m curious to see how it does. There aren’t any similar restaurants within a 10-mile radius.
The location is smack in the middle of a residential zone. It’s bordered by a very small strip mall and nothing else. Unless the restaurant is your main destination, there isn’t anythng else around that courts foot traffic.
In one of my old neighborhoods, there was a spot that, in a six or seven year period, announced five different restaurants, none of which ever actually opened.
Almost all my favorite special occasion/romantic date type non-chain restaurants have closed in the last 5 years. Valentine’s Day, I couldn’t think of a single place I wanted to go. My absolute favorite for Valentine’s Day used to turn all electric lights in the dining room off and use a zillion candles and the roaring fireplace for light. The couple who owned it divorced and the romance was over. Even the building got bulldozed!
Damn. What did s/he do?
In my last neighborhood, restaurants typically went under in less than a year. It was a downtown, relatively youthful part of Tokyo (Sangenjaya, if you’re keeping score) where the rents were high and the streets were packed with competing restaurants (along the 10-minute walk between the station and my apartment, I once counted over 50 places to get a prepared meal).
Most new restaurants followed the same pattern: packed with customers the first two weeks, then steady business until it finally closes a few months later. Unless the restaurant has something really unique and attractive about it, it’s very difficult to consistently attract enough business to cover the high monthly expenses. Even if your food and service are excellent, there are a hundred (literally) competitors within easy walking distance that also provide excellent food and service. That neighborhood was heaven for diners, but brutal for restaurateurs.
My current neighborhood (Minami Senju) is just the opposite. Mostly residential, lots of people, lower property costs, and only a small number of restaurants for the whole area. The survival rate for restaurants here has been much higher, with only a bit of turnover in the last two years. Sadly, with the lower competition pressure, the quality also seems to be lower.
If the place is large enough to where the owners can’t just operate it on their own, one of the biggest determining factors is the availability of dependable and capable employees. Bad service can chase ppl away quicker than sub-standard food.
I remember reading about restaurant closings in Anthony Bourdain’s book Kitchen Confidential. He said (IIRC) that often, restaurant founders overestimate the setup cost versus the income in the first year and start floundering and scraping to make ends meet (impacting the quality of the food). And then, to make matters worse, they start cutting cost by closing one or two days of the week…which is worse than it sounds, because if people cannot depend on finding a place open, they will from the outset decide to go someplace else EVERY TIME they go out.
I guess this is worse for restaurants who cannot really depend on foot traffic and need to attract customers (i.e. not in city centers; in Europe I’d say locations without parking lots at large intersections). In those cases it really depends on the quality of the restaurant - near my house (in Munich, FTR) there’s one location like that, which saw a progression of mediocre restaurants fail, until an excellent Indian restaurant moved in which is now packed every day of the week.
Downtown Fort Myers has a gaggle of failed restaurants. When I first got here, there were a bunch of long-standing local lunch joints that had been around a while. But then the building boom hit the county, but not the downtown. Then the rents went up and a lot of those places shut down. Then came a series of upscale restaurants in the same locations that have failed because the downtown is dead after five. The few places that have managed to hang on are those that cater to the cheap-lunch crowd. Recently, a Subway and a Starbucks have come downtown and seem to be doing well (A Mixed blessing. I dislike big chains but their presence signals economic health for the downtown.). A Quiznos is about to open as well. This does not bode well for the ma and pa sub shop that I love so.
Some locations in my home town have changed owners and names but not business every six months, regular as clockwork, for over five years. Normally a business that survives that critical sixth month will last until the owner retires or longer. Funny thing is, often the one that manages to buck the trend is the storeowner that changes the business; maybe the place never took off as a bar because it was simply too tiny and dark but change the lights, rip off the bar and grill, and it does well as a hippy store. But the real weird ones are those where you don’t ever see a customer yet they stay in place for years and years.
In a course on business management I once took, the teacher pointed a type of “false failure:” selling the business. While that’s not the usual objective when setting up a business, it’s not a “failure” if you’re still making a profit. The class pointed another one: having finished the money laundering objective. The stay-in-place empty stores are generally suspected to be money laundries.
Figuring costs is somewhat harder in a restaurant than it would be in say a hardware store.
Hardware store: Buy a widget for $2.00 Price it at $4.00
Restaurant: How much are eggs going for this week? What did the bad winter do to the price of produce? Nobody bought the prime rib, now it is going bad. What effect does a cook that gives too much of each item on the plate have on costs?
There used to be a Mexican place that we just loved. We even knew the owner personally, nice guy he was. Unfortunately he had to shut his doors at the first of the year. In spite of being on a busy street, he cited that it was in a poor location. This location is now on its fifth incarnation. About 15 years ago it started out as a fast food Mexican restaurant that was really good (better than Taco Bell, certainly). After a year or so it closed and reopened as another Mexican fast food place. This time, however, it wasn’t so great and I only went there once. It closed after six months, no big surprise. Then it opened as a hamburger joint. The food was good again, and the place actually stayed in business for about three years. After it closed it reopened as another Mexican restaurant, full service, the one we really liked. The place always seemed to be busy and the owner had built up a loyal clientele, including us. Now it’s a fast food Mexican restaurant again. It’s good and it’s cheap. It has another location in town that has been open for about a year and seems to be doing well there, so here’s hoping they’ll have a successful run at this location.